U.S. Stocks Rebound on German Confidence, Earnings Data

By Sarah Pringle and Nikolaj Gammeltoft -
Feb 22, 2013

U.S. stocks rebounded from the worst slump since November as German business confidence jumped to a 10-month high and earnings from Hewlett-Packard Co. and American International Group Inc. topped estimates.

The S&P 500 rose 0.9 percent to 1,515.60 at 4 p.m. in New York. The index fell 1.9 percent in the previous two days, the most since November, as concern grew that the Federal Reserve may slow the pace of stimulus. The Dow Jones Industrial Average added 119.95 points, or 0.9 percent, to 14,000.57 today. About 5.9 billion shares traded hands on U.S. exchanges today, 4.6 percent below the three-month average.

“The tone generally is not ebullient, but it tells you that there’s a real strength in the equity market that it’s actually rebounding today,” Jeffrey Davis, chief investment officer at Boston-based Lee Munder Capital Group LLC, said in a phone interview. His firm oversees $5 billion. “I haven’t seen a market like this in a long time where you can absorb a week of not-so-good news and rally at the end.”

In Germany, the Ifo institute’s business climate index, based on a survey of 7,000 executives, climbed to 107.4 in February from a revised 104.3 in January. The median of 38 forecasts in a Bloomberg News survey had called for an increase to 104.9. The latest reading was the highest since April.

Italian Elections

In Italy, voters head for general elections on Sunday amid concern the emergence of a populist government will derail the nation’s austerity program.

The S&P 500 (SPX) has gained 6.3 percent this year as U.S. lawmakers agreed on a compromise budget and companies reported better-than-estimated earnings. About 73 percent of the companies in the S&P 500 that have released quarterly results have exceeded profit estimates, and 64 percent beat sales estimates, data compiled by Bloomberg show.

The benchmark index retreated 0.3 percent for the week, its first weekly drop of the year. Equities slid in the previous two days as Fed minutes showed several participants at the Federal Open Market Committee’s latest meeting said the central bank should be ready to vary the pace of its $85 billion in monthly bond purchases, spurring concern stimulus will be curtailed.

Entry Point

“A lot of people have been looking for pullbacks in the market to put money at work in equities,” said Brian Amidei, a Palm Desert, California-based managing director at HighTower Advisors. His firm manages about $25 billion. “The market got a lift from fourth-quarter earnings. It will do well this year but we will have some volatility in between as we’re starting to see now.”

The S&P 500 is 3.2 percent below its 2007 all-time high of 1,565.15, while the Dow is 1.2 percent from its record high of 14,164.53.

The Morgan Stanley Cyclical Index (CYC), a measure of companies whose earnings are most tied to economic growth, climbed 1.3 percent today. The Dow Jones Transportation Average added 1.2 percent, erasing most of the week’s losses. The Chicago Board Options Exchange Volatility Index, or VIX, retreated 6.9 percent to 14.17, following a rally of 24 percent over the previous two days.

Hewlett-Packard

Hewlett-Packard (HPQ) gained $2.10, the biggest rally since November 2008, to $19.20. The largest personal-computer maker forecast fiscal second-quarter profit that exceeded analysts’ estimates, helped by cost-cutting measures and a smaller-than- projected drop in service sales.

The Palo Alto, California-based company is using job cuts to bolster profit as demand for printers and personal computers slumps and companies curtail purchases of higher-margin hardware and software.

Texas Instruments rose $1.7 to $34.18. The largest maker of analog chips increased its quarterly dividend by 33 percent and said it added $5 billion to its stock repurchase program.

AIG advanced $1.17 to $38.45. The insurer that repaid a U.S. bailout gained as fourth-quarter results beat analysts’ estimates after investments drove a surprise operating profit. Chief Executive Officer Robert Benmosche, 68, has struck deals to sell units including non-U.S. life insurers to simplify the company and help repay the government.

Investment Results

The operating profit was “driven primarily by better-than- forecasted capital-markets” and other investment results, Randy Binner, an analyst at FBR Capital Markets, said in a note.

Home Depot Inc. (HD) rose 1.9 percent to $65.58, rebounding after yesterday’s 3.1 percent loss. The largest U.S. home- improvement retailer was raised to outperform from market perform by Oppenheimer & Co.’s Brian Nagel, who said the stock is benefiting from increased consumer demand as housing trends improve.

Newmont Mining Corp. added 0.7 percent to $40.82. The largest U.S. gold producer reported fourth-quarter earnings that beat analysts’ estimates after taxes were lower than expected.

Tysabri Stake

Elan Corp. jumped 3 percent to $10.60. The drugmaker plans to buy back $1 billion of stock, equal to 16 percent of the company’s market value, after selling its stake in the Tysabri multiple sclerosis drug to Biogen Idec Inc.

Nordson Corp. (NDSN) slid 7.1 percent to $62. The Ohio-based maker of machines that apply adhesives to consumer and industrial products said it expects second-quarter earnings-per-share of between 78 cents and 87 cents, compared with estimates of 93 cents.

Abercrombie & Fitch Co. tumbled 4.5 percent, the most in the S&P 500, to $46.86. The teen retailer with more than 800 namesake and Hollister Co. stores forecast a loss for the first quarter, citing concern about the weak economy’s impact on sales.